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Courts Will Not Assist “Unlicensed Moneylender” in the Recovery of Interest and Principal Loan Amount

posted 7 months ago

Introduction

The Federal Court in the case of Triple Zest Trading & Suppliers & Ors v Applied Business Technologies Sdn Bhd [2023] 1 LNS 2016 set aside the decision of the Court of Appeal in Triple Zest Trading & Suppliers Sdn Bhd & Ors v Applied Business Technologies Sdn Bhd and another appeal [2023] 2 MLJ 374, which previously held that an “unlicensed moneylender” can recover the principal loan sum but not the interest.

The Federal Court ruled that the Courts will not assist a person who is not a moneylender i.e. an unlicensed moneylender, to recover/ claim both the interest and principal amount lent.

Background Facts

Triple Zest Trading & Suppliers (“TZT”) approached Applied Business Technologies Sdn Bhd (“ABT”) for a loan of RM800,000.

ABT agreed, subject to the loan of RM800,000 being repaid with another RM800,000 as “agreed profit”.

After TZT and ABT executed the loan agreement (described as a “friendly loan” by the Courts), TZT deposited the following with ABT as collateral:

(i) the title deeds for two (2) parcels of land; and

(ii) four (4) undated cheques, each in the sum of RM400,000 (total value RM1.6 million)

TZT defaulted in the repayment of the principal amount of RM800,000 to ABT.

High Court

ABT sued TZT in the High Court and sought for the following reliefs:

(i) An order that the two (2) parcels of land be transferred to ABT, or alternatively;

(ii) TZT to pay back the amount owed amounting to RM1.6 million (principal loan of RM800,000 + “agreed profit” of RM800,000) to ABT.

High Court decided in favour of ABT and ordered the TZT to pay ABT the sum of RM1.6 million (principal loan of RM800,000 + “agreed profit” of RM800,000) with interest at 4% from the date of judgment until the date of full settlement.

Court of Appeal

Dissatisfied with the decision of the High Court, both parties appealed to the Court of Appeal:

(i) TZT against the whole of the decision; and

(ii) ABT against that part of the decision that disallowed the transfer of the lands.

The Court of Appeal held that the TZT was only liable to repay the principal loan sum of RM800,000 with interest at 4% from the date of the High Court decision until the date of realisation but not the “agreed profit” of RM800,000.

Federal Court

The Federal Court held that the decision of the High Court was untenable and dangerous as it sets a precedent that an unlicensed moneylender such as ABT can lend money at 100% interest (principal of RM800,000 + interest of RM800,000) without being in breach of Moneylenders Act 1951.

ABT was in breach of the Moneylenders Act 1951 when ABT lent TZT the principal of RM800,000 with interest. The “agreed profit” of RM800,000 imposed by ABT clearly constitutes interest under the Moneylenders Act 1951.

The Federal Court highlighted that:

“[39] So, by clause 1 of the loan agreement the “agreed profit” of RM800,000.00 to be earned by the respondent was the “consideration” for the RM800,000.00 loan. Read with clause 3, this “agreed profit” of RM800,000.00 was in fact and as a matter of law “interest” within the meaning of section 2 of MA51, as it was a sum that was “in excess of the principal paid or payable to the moneylender”.

[40] Therefore, when the respondent agreed to lend the RM800,000.00 to the appellants subject to payment of another RM800,000.00 as “agreed profit”, it was carrying on the business of “moneylending” within the meaning of section 2 of MA51 as it was “lending money at interest, with or without security”.

[41] The “consideration” of RM800,000.00 payable to the respondent at any time before or at the expiry of the agreement period of 30 days was nothing but “interest” at the rate of 100% disguised as “agreed profit”. By whatsoever label it was given, the RM800,000.00 was “any amount by whatsoever name called in excess of the principal paid or payable to a moneylender”. If a rose by any other name would smell as sweet, a corpse flower by any other name would smell as foul.”

ABT failed to show that the RM800,000 that it lent to TZT was not lent at interest. The Federal Court commented that that by describing an exorbitant interest rate of 100% as “agreed profit”, ABT has “pushed profiteering to a new level”.

The Federal Court held that the Courts CANNOT lend a helping hand to a person who charges exorbitant interest to claim back the principal amount:

“[23] We agree with learned counsel for the appellants that if the court were to lend a helping hand to a person who charges exorbitant interest to claim back the principal amount lent, it would create a fertile breeding ground for illegal moneylenders a.k.a. “Ah Long” because in the event the borrower does not repay, the principal loan amount is guaranteed to be recoverable through the court process. Ah Longs would have nothing to lose. Their only loss, if at all it can be called a loss, is that they will not be able to enjoy the fruits of the exorbitant interest rates that they charged their borrowers, but that should matter little to them as they will get back their money in full.

[24] In the present case, not only was the respondent not punished for contravening section 5(2) of MA51 but it was in some way given a helping hand by the court, albeit unwittingly. Without being derogatory, the decision of the courts below can be likened to allowing a robber to claim back his cost and expenses in a botched robbery attempt.

[26] This not only goes against the object of MA51 which is for the “regulation and control of the business of moneylending, the protection of borrowers of monies lent in such business, and matters connected therewith” (see the preamble to MA51) but is also against the trite principle that a loss lies where it falls when an agreement is found to be illegal.

[27] Such an agreement is also void by statute. Under section 24 of the Contracts Act 1950, an agreement is void if the object or consideration of the agreement is unlawful.”

The Federal Court set aside the decision of the Court of Appeal. As such, TZT is not liable to pay to ABT the sum of RM1.6 million (principal loan of RM800,000 + “agreed profit” of RM800,000).

Comments

The decision of the Federal Court has clarified the position of the law pertaining to “friendly loans”. Companies and individuals are still allowed to provide “friendly loans”, provided that the principal amount lent is not subject to any interest (including any sum/ monies in excess of principal amount of similar nature).

Any “friendly loans” which impose interest are prohibited in law and the Courts will not assist the lender to recover the interest and the principal amount lent.

About the Author

Chew Jin Heng
Associate
Arbitration and Adjudication, Debt Recovery and General Litigation, Construction Disputes, Contractual Disputes, Land Disputes and Family Law
Halim Hong & Quek
[email protected]

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